John FitzGerald, a research professor at the ESRI
(Economic and social Research Institute), says in a paper published today that
GNP (gross national product) and the Current Account surplus have been
overstated by the rise in large mainly US companies transferring headquarters to
Ireland while having most of their operations overseas.
For example, in 2009, Accenture, the US
management consultancy, moved its headquarters from Bermuda to Ireland. Large US
industrial companies such as Seagate and Ingersoll-Rand also are technically
FitzGerald says: "The treatment of these
redomiciled plcs in the national accounts differs from the treatment of the
profits of many of the multinationals already operating in the Irish economy in
the manufacturing or services sector because, crucially, these latter
multinationals are not head quartered in Ireland."
Traditionally GNP, which excludes the profits of
most of the foreign-owned sector, has provided a better measure of economic activity in Ireland.
However, this has been affected in recent years by the profit flows of redomiciled plcs. Adjusting GNP to take account of these flows
contraction in the Irish economy was much deeper in 2009, the Irish economy
actually contracted in 2010, rather than showing moderate GNP growth, and was
marginally weaker in 2011, while GNP growth in 2012 was approximately 1 percentage
point lower than official estimates.
If the pattern persists then adjusted GNP
growth will be lower than forecast and any boost to growth from a fall in the
balance of payments surplus will be smaller than had been previously
John FitzGerald says in his
paper [pdf]: "The change in the undistributed profits as a share of GNP is a
measure of the extent to which the measurement of GNP has been inflated by the
activity of these firms over the last five years, without a compensating
reduction affecting GNP through increased factor outflows.
There is also a corresponding implied adjustment
needed in the official current account figures, as shown in Table 2. This
would imply that, instead of having a current account surplus of around 6.1% of GNP in 2012, the underlying surplus was closer to 0.6% of GNP."
The fact that the underlying value of GNP is also
lower than measured in the national accounts means that the burden of debt,
"when expressed as a percentage of GNP, is higher than we had thought."
The GNP level also has an impact on the "the base
on which Irish contributions to the EU Budget are calculated. Thus, while these
companies confer no significant benefit on the Irish economy in terms of
employment or taxes, they do give rise to a higher EU budgetary contribution."
The data show that incoming net profits from
re-domiciled PLCs have grown exponentially since 2009, up from €1.5bn to €7.4bn
CRH, Ireland's largest indigenous company, has
about 1,500 of its 75,000 employees based in Ireland and 90% of its shareholders
are resident overseas.
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